FISCAL NOTE
Date Requested: January 12, 2024
Time Requested: 05:20 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2289 |
Introduced |
HB4678 |
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| CBD Subject: |
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FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to set the standards for and provide for a childcare tax credit.
Based on our interpretation, the legislation creates two tax credits for childcare expenses for a resident individual who is eligible for the federal Child and Dependent Care Credit provided by Internal Revenue Code Section 21 for the same taxable year. The credit created under W.Va. Code §11-29-1 is calculated as a percentage of the federal income tax credit with the applicable percentage based on the resident individual's federal adjusted gross income. Language in the bill indicates that the credit may be retroactive back to 2007 for taxpayers whose federal adjusted gross income is less than or equal to $25,000.
The credit created under W. Va. Code $11-29-2 is based on the credit calculated under §11-29-1 and the "quality rating" of the childcare facility. The "quality rating" appears to correspond to the West Virginia Department of Health and Human Resources tiered reimbursement schedule for West Virginia Childcare Centers. The tiered reimbursement schedule only includes licensed care centers, while the federal credit may include payments made to unlicensed caregivers. Both credits are refundable for taxpayers whose federal adjusted gross income is less than or equal to $25,000. Taxpayers with federal adjusted gross income greater than $25,000 may carry excess credit forward for a maximum of five years.
According to our interpretation, the proposed legislation would decrease General Revenue Fund collections by up to $1.6 million in FY2025 and in subsequent fiscal years. This estimate does not address the potential retroactive aspect of the legislation.
Additional administrative costs incurred by the State Tax Department would be $199,500 in FY2025 and $135,000 in subsequent fiscal years. The retroactive aspect of the bill would potentially create a significant number of amended returns.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2024
Increase/Decrease
(use"-") |
2025
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
199,500 |
135,000 |
| Personal Services |
0 |
135,000 |
135,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
4,500 |
0 |
| Other |
0 |
60,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-1,600,000 |
-1,600,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the legislation creates two tax credits for childcare expenses for a resident individual who is eligible for the federal Child and Dependent Care Credit provided by Internal Revenue Code Section 21 for the same taxable year. The credit created under W.Va. Code §11-29-1 is calculated as a percentage of the federal income tax credit with the applicable percentage based on the resident individual's federal adjusted gross income. Language in the bill indicates that the credit may be retroactive back to 2007 for taxpayers whose federal adjusted gross income is less than or equal to $25,000.
The credit created under W. Va. Code $11-29-2 is based on the credit calculated under §11-29-1 and the "quality rating" of the childcare facility. The "quality rating" appears to correspond to the West Virginia Department of Health and Human Resources tiered reimbursement schedule for West Virginia Childcare Centers. The tiered reimbursement schedule only includes licensed care centers, while the federal credit may include payments made to unlicensed caregivers. Both credits are refundable for taxpayers whose federal adjusted gross income is less than or equal to $25,000. Taxpayers with federal adjusted gross income greater than $25,000 may carry excess credit forward for a maximum of five years.
According to our interpretation, the proposed legislation would decrease General Revenue Fund collections by up to $1.6 million in FY2025 and in subsequent fiscal years. This estimate does not address the potential retroactive aspect of the legislation.
Additional administrative costs incurred by the State Tax Department would be $199,500 in FY2025 and $135,000 in subsequent fiscal years. The retroactive aspect of the bill would potentially create a significant number of amended returns.
Memorandum
The stated purpose of this bill is to set the standards for and provide for a childcare tax credit.
W. Va. Code §11-29-1(a) establishes a credit from "the tax imposed by this chapter" for childcare expenses for which a resident individual is eligible pursuant to the federal income tax credit. The meaning of this language is unclear. Presumably, from the overall context of the bill, it could be assumed that this is a credit against personal income tax imposed by Article 21; but it should be more clear, since "this chapter (chapter 11) imposes a multitude of taxes. It is strongly implied that the taxpayer must have claimed and received the federal credit (26 U.S.C. §1), although there is language to the contrary in Paragraph (B).
If the resident individual's federal AGI is equal to or less than $25,000, the credit shall be calculated based on the federal credit before it is reduced by the amount of federal income tax and equal to the following amount for the following tax years:
(A) For tax years beginning after 12/31/2006: 50% of the unreduced federal credit.
(B) "For the individual provided for by §11-29-1, the West Virginia credit shall be allowed without regard to whether they claimed such federal credit." This credit has a retroactive application of 18 years, making it impossible to administer. Paragraph (B) also references the section in which it is located and provides that the federal credit need not have been claimed. It is not clear whether provision only applies to taxpayers earning less than $25,000.
Subsection (b) addresses treatment when the credit exceeds tax liability. If the resident individual's federal adjusted gross income is equal to or less than $25,000 then this is a refundable credit. The bill directs that the refund payment shall be made from "current collections of the taxes imposed under §11-10-1, however no taxes are imposed by Article 10. The credit can be carried forward for up to five years when the resident individual's federal adjusted gross income is greater than $25,000.
W. Va. Code §11-29-2 creates an additional credit against "West Virginia individual income tax" for childcare expenses based upon the accredited rating of the childcare facility. The credit is calculated per child in cases of a taxpayer with multiple children. If a child attends more than one facility per year, the credit is based upon the facility with the "highest quality rating"' although the bill fails to identify what "quality rating" this refers to.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov